Detroit – General Motors Corp., bleeding money and the subject of bankruptcy speculation a year ago, needed a dramatic change.
So vice chairman Bob Lutz gathered a group of top GM executives and challenged them to create a plug-in electric vehicle – in less than a year – that would help catapult the venerable automaker back into a position of technological leadership.
The push to create the car exemplified the urgent, high-stakes decisions being made at GM during one of the most crucial years in the company’s history. Last January, GM stock was near a 24-year low.
Industry watchers said chief executive officer Rick Wagoner’s job was on the line.
“How do we get people to take us seriously again?” Lutz asked at the meeting shortly after Detroit’s 2006 North American International Auto Show.
“We’ve got to shock people if we want to change perceptions about GM,” Lutz told the group, according to people who were there.
The car, approved by GM’s Automotive Strategy Board in March, would be code-named “iCar” for its potential to do in the auto industry what the iPod had done for music and video.
Now, as GM prepares to announce its 2006 earnings and a fourth-quarter profit, it is being taken seriously again, with the widely praised debut of the Chevrolet Volt plug-in concept car at this year’s auto show being just one piece of the changed perception.
The change within one year was anything but easy, as the company’s largest stockholder tried to engineer a global alliance over the summer and GM thinned its U.S. hourly workforce by a third through a historic buyout program.
“I don’t remember that many belly laughs,” Wagoner said in an interview with the Free Press. “I have to say, as I went on vacation here in December, it occurred to me that I hadn’t had a day off for a year.”
While a loss for 2006 is expected, it will be a significant improvement from last year’s $10.6 billion loss. The company was scheduled to release 2006 figures Jan. 30, but said the numbers would be delayed while the company restates financial results going back to Jan. 1, 2002, primarily due to accounting errors it discovered in financial statements.
The announcement fit the pattern of GM’s past year. Two steps forward, but nowhere near the finish.
Still, while the company’s top executives acknowledge that much difficult work lies ahead – not the least of which is negotiating a new contract with the UAW this year – even improving GM’s public perception was a result that was difficult to fathom a year ago.
As 2006 began, a UAW agreement to help reduce GM’s health care costs was awaiting judicial approval; GM needed to sell financial arm GMAC for cash but had no apparent buyer; and the automaker’s bonds had fallen severely to junk status.
Then on Jan. 11, Jerry York – a representative of GM’s largest shareholder, Kirk Kerkorian – dealt the automaker another public blow, calling for wage cuts from the boardroom to the factory floor, halving of the dividend, the sale of the Saab and Hummer brands and the rapid adoption of a “crisis mode.” GM Chief Financial Officer Fritz Henderson said then – and he and Wagoner still say now – the company was already in crisis mode and working on many of the issues York said were vital.
“I had complete confidence that underlying the numbers, we were doing the right things,” Wagoner said during the interview in his river- view office atop the Renaissance Center.
The same day as York’s speech, GM slashed sticker prices by $1,300 //as part of its “going-to-market” strategy, an attempt to break its feast-or-famine cycle of using huge incentives to spur sales.
The next day, in the face of widespread skepticism about the future of the SUV segment, the automaker proclaimed 2006 the Year of the Truck and launched sales of its newly restyled Chevrolet Tahoe SUV.
Skeptics shook their heads. Certainly GM had hammered another nail in its coffin by staking its future on trucks with relatively poor fuel economy.
Before the end of January came another blow: The Wall Street Journal quoted President George W. Bush as saying GM and Ford Motor Co. should “develop a product that’s relevant” rather than look to Washington for help with their health care and pension cost problems.
GM’s top lobbyist, Ken Cole, called to take issue with the comment and ask the White House to be more careful in its statements, former White House Chief of Staff Andy Card told the Free Press.
“Obviously we called the White House,” said one top-level GM insider who asked not to be identified because he wasn’t authorized to comment on the issue. “We were in a free fall and in a global design push, but the message wasn’t getting out to the public.” Soon, Fortune magazine sounded GM’s death knell on an all-black cover, speculating on the risk of bankruptcy.
Top executives throughout GM said it was frustrating to be working on tasks – both cost-cutting and those they expected to generate revenue – and for no one to recognize it.
“We didn’t wake up last year and go, ‘Oh, we’ve got to address these issues,”‘ Wagoner said.
But Wagoner took his own action to address the cascade of negative events.
He asked GM’s retired vice president of public relations, Steve Harris, to leave sunny New Mexico and return to Detroit.
(EDITORS: BEGIN OPTIONAL TRIM) “He made an immediate impact,” said Jason Vines, Chrysler’s vice president of communications, who once worked for Harris. Harris had an established record of credibility and trust – not just in the media, but among executives as well.
(END OPTIONAL TRIM) In his years at GM and at Chrysler before that, Harris had trained many of the industry’s top spokespeople, earning the “Star Wars”-inspired nickname Yoda.
And as soon as Harris arrived, industry watchers say, GM started to get some of its good news into the media … and out to the public.
(EDITORS: BEGIN OPTIONAL TRIM) Peter DeLorenzo said Harris’ return to GM was critical to improving the perception of what was happening at the automaker.
“They had a lot of the components of the turnaround in place, but with Steve’s return, there was a definite shift toward communicating that image,” said DeLorenzo, a former advertising executive who created the blog autoextremist.com.
Wagoner acknowledged that Harris pushed him, too.
“For a while there, it was very, very busy, because, you know, I’m trying to run North America, run the business globally, and I had board stuff and certain issues co me up which we hadn’t expected that required attention. … And then Steve comes back and he wants to do a lot of interviews and that takes a lot of time. I say that sort of jokingly but it’s not.” (END OPTIONAL TRIM) But improving the beleaguered automaker’s image – in the public, among its workers and on Wall Street – would take some time and more than just PR work.
In fact, GM was mowing through an impressive list of restructuring actions, including finding a buyer for GMAC, selling its stake in Isuzu, slashing its dividend, charging retirees more for health care and cutting executive pay.
Then on June 26, almost 35,000 hourly GM workers – nearly one-third of the company’s 113,000 U.S. hourly workforce – agreed to take buyouts or early retirement packages.
Wagoner characterized it as the event in 2006 that unfolded “significantly better than we thought as we went into the year” and “really exceeded” executives’ expectations. He credited UAW leaders for their parts in negotiating and explaining the health care concessions and buyout plans to the U.S. hourly workers.
(EDITORS: BEGIN OPTIONAL TRIM) David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said the health care deal and buyout news alone would be impressive moves for a company to accomplish in one year.
“It’s an amazing story,” said Cole. “I’ve never seen anything quite like it in this industry.” Through the buyouts and health care deal, Cole said, GM reduced its cost per vehicle by nearly $2,000.
(END OPTIONAL TRIM) It wasn’t enough for Kerkorian. In May, York engaged Nissan-Renault CEO Carlos Ghosn in a conversation that would add another item to GM’s 2006 to-do list. York asked Ghosn if he was interested in replacing Wagoner as CEO.
Ghosn rebuffed the proposal but expressed interest in an alliance with GM.
York approached Wagoner about pursuing an alliance in June. Wagoner planned to evaluate the proposal after a short summer vacation, a GM executive close to Wagoner said.
But Kerkorian wanted faster action and surprised Wagoner and other board members on June 30 by making the proposal public.
Those in GM’s executive suite learned about it by way of a fax, an insider close to Wagoner said.
Wagoner didn’t go on vacation.
“The good news is, it was a reasonably compact time period,” Wagoner said of the 90-day study period before the talks ended.
(EDITORS: BEGIN OPTIONAL TRIM) In the past year, GM began showing the results of reworking its product development, engineering and manufacturing units to operate globally instead of regionally; won concessions from the UAW on health care benefits, and enticed 35,000 people to leave early to enable it to more easily shut down 12 plants.
It was a lot to do in one year and Wagoner said it was a testament to the fact that people at GM see the need to change fast to compete in a global auto industry.
As a result of its many changes, GM reduced its structural costs – those that don’t change depending on how many cars it builds – to about 29 percent or 30 percent of its revenue, $9 billion last year, from 35 percent. The company still hopes to cut structural costs to 25 percent of revenue.
(END OPTIONAL TRIM) Change takes time, Wagoner said. But he said he is often surprised at what the people at GM are able to do when pushed.
“Just think about the things that were enacted in the last 12 months,” Wagoner said. “To stack up five or six of those in one year, and move the ball forward on Delphi, and frankly to come out very aggressively with a much clearer vision on alternative propulsion: T hat’s a lot of stuff in a year.” — (c) 2007, Detroit Free Press.
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—– PHOTOS (from MCT Photo Service, 202-383-6099): auto-gm-bizplus AP-NY-02-02-07 0607EST
